Small Business

The Three T's of Growth

April 19, 2001

A decade or so ago, strategies for attracting new companies to a city or state were fairly straightforward: Government officials would offer tax breaks and other financial incentives and emphasize their region's business-friendly policies. Their targets were almost always big companies with loads of jobs.

But the technology boom should have public officials rethinking that approach, argues Richard L. Florida, a professor of regional economic development at Carnegie Mellon University in Pittsburgh. Even in the midst of a tech downturn, cities and states are competing to become the next Silicon Valley. Yet their efforts are often misguided. In many cases, they're still using old formulas designed to snag major corporations instead of fostering a startup friendly climate.

What Florida proscribes could be called the liberal arts approach to economic development. The point, he says, is to build "habitats" that attract the kind of highly skilled, highly educated workers tech companies need. To do that, he suggests investing in music and the arts, education, and outdoor recreation, or whatever else is authentic to a place and improves the quality of life. "We're shifting from a corporate to a people-driven society," he says.

That's not to say local governments ought to ignore major corporations. Indeed, they remain the anchors of many communities. But the entrepreneurial spirit that fueled the tech boom will undoubtedly drive growth in the future, says Florida, who recently spoke with BusinessWeek Online's Julie Fields about what cities should -- and shouldn't -- do to make sure they're not left behind. Here are edited excerpts of that interview:

Q: If rivers and ports and railroads were important in the industrial era, what factors are important in economic development today?

A: Talent. When you look at the research, it's pretty clear human capital and talent drive regional growth, but no city is thinking about that. So over the past three or four years, I've tried to understand what factors attract people and talent, particularly people with a bachelor's degree and above.

Q: And what have you found?

A: I often say the recipe for economic growth in the 21st century is the three T's: technology, talent, and tolerance. Technology, of course, is a no-brainer. You need to have a great university and higher-education system because that attracts talent.

Q: Is having a university really a requirement?

A: What the university does better than anything else is become a magnet for talent from all over the country -- and all over the world. I think you can generate talent magnets without a university. Hollywood is a talent magnet for [entertainers]. But in this new economic game, you're going to be really hard-pressed to win without a world-class university.

Q: How is that recipe -- the three T's -- different from what was used before?

A: In the past, we always thought the places that would win were the ones that had the most companies. And so the way we rated cities was by the number of corporate headquarters they had.

Well, one of the things we know is that large corporations have spent most of the past two or three decades downsizing, or moving the stuff that used to be in the [headquarters] to the business units. And I think what we're learning is that the cities had their eyes on the wrong [thing] ball. [It isn't about] attracting companies, it's attracting people.

Q: So what does attract people?

A: It's pretty clear people no longer move anywhere for a job. People move to places that offer them lots of jobs. They know their job is going to end in a year or two or three, and they want to know there are more jobs in the local environment.

The second thing they want is to be in a place that allows them to pursue whatever kind of lifestyle they want -- whether they're young, and that means active outdoor recreation and nightlife, or they're older, and that means a better cultural scene. And the third thing people want -- it's reinforced in all of our focus groups and interviews -- is a place that's diverse. There's a very strong correlation between high-technology growth and the foreign-born population in a region. And there's an even stronger correlation with the percentage of the population that's gay.

Q: What are some missteps you've seen cities make in trying to encourage an entrepreneurial climate?

A: Cities have an image of the economy from about the year 1957: a downtown with a bunch of headquarters with men -- men in suits -- commuting from a suburb. And they think of this as the kind of city they need to create. So what do they do? They invest in baseball and football stadiums, each of which costs about $500 million, and they try to provide this downtown generic mall.

Q: What do you make of the monikers cities and regions have adopted to try to cast themselves as high-tech hubs? Silicon Prairie, Silicon Bayou, Digital Harbor, and Webport are just a few.

A: Well, they're not even serious about it. They want to put that moniker on it, but they still want the old '50s version [of a city]. They don't understand that what the high-technology industry needs is creative, different, diverse, geeky, nerdy, bizarre people. The reason people gravitate to this industry is because they're creative, and creativity isn't one-dimensional. They want to be surrounded by other creative people.

Q: So what should local officials do?

A: They have to talk to [high-tech workers and entrepreneurs]. One of the things I tell city and regional leaders all over the country is to march down to the local university and ask [student] three things: Where do you want to work and live when you graduate? What makes those places the kind of places you want to go? And what does our city need to get that?

Q: What are some places that understand this?

A: Take Seattle and Austin. The two cities -- I think it's important to understand -- were attractive places to live before they were high-tech meccas. Seattle was always seen as a center for alternative music, and Austin was always seen as an artistic, bohemian center.

The reason high-tech could take root there is because people wanted to live there. Creative people with PhDs would always hang around Austin and play in their bands. When high-technology got going, they found jobs with high-tech companies. You're not going to win unless you're an attractive place to live. And I think a lot of cities don't want to accept that.